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Rekenthaler Report

How to Lose a Lawsuit

Accuse a fund company of overcharging.

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Man vs. MetWest
In October 2015, one Thomas Kennis sued MetWest in the U.S. District Court of Central California for the company’s oversight of Metropolitan West Total Return Bond (MWTIX). Kennis’ lawyers alleged that MetWest’s rent was too damn high. “Defendant breached [its] fiduciary duty by receiving investment advisory fees from the Fund that are so disproportionately large that they bear no reasonable relationship to the value of the services provided by the Defendant.”

The plaintiff’s complaint: When MetWest Asset Management worked for other mutual fund companies as a subadvisor, it earned a maximum of 20 basis points per year. (One contract ran as low as 5 basis points, at the final breakpoint.) But when running money for its own organization, with MetWest Total Return Bond, it was paid 35 basis points, even though MetWest Total Return Bond was by far its largest account. Forget volume discounts; this was a volume premium.

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John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.